US property: a once in a lifetime opportunity?

published 19 April 2011

If you were asked to design a nation fit to thrive in the 21st century, you certainly would not start with a country set up as the USA is today.

In a world running out of fossil fuels, its dependence uponoil is all too obvious. Not only because even the shortest journey cannot be made on foot, but also because of the vast trucking industry.

Gleaming monster trucks thunder down every highway, carrying goods from one side of the country to the other. How they must be hurting from the doubling of gasoline prices we've seen recently!

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And in a world where food is in increasingly short supply, the USA's wastefulness is shameful. I have been in the US on holiday for the last week. And I don't think I ate more than half of any of the gigantic meals set before me in the restaurants of North and South Carolina. No doubt the food that I left on my plate went no further than the garbage can.

Roadsides are decorated with huge banner advertisements featuring giant burgers dripping with red meat and processed cheese, with a one word question beneath: Hungry?' As if anyone in the United States could possibly be hungry!

Frankly, for a country whose health system is groaning under the weight of an ageing and obese population, a spell of enforced hunger is probably just what is required.

The nation spending four dollars for every three

Today's USA was designed and built in the 1950s, when post-war prosperity meant plenty of food on the table, a cocktail cabinet in the front room, and a Cadillac on the driveway.

America's efforts to wean the nation off these indulgent habits consist of little more than putting a slice of lettuce between the sides of the burger and calling it the healthy option'. Or offering a senior citizen's breakfast' of merely three huge pancakes smothered in syrup, instead of the usual four.

That spirit of excess has also landed the nation in serious financial trouble. Flicking through the many television channels (that consist mostly of commercial breaks), I came across a rare attempt at serious debate. An earnest middle-aged man in a suit was criticising President Obama's attempt to cut government spending.

38 billion dollars,' he said, is a drop in the ocean'.

38 billion dollars sounds like a fair sum to me. But it will barely scratch the surface of the USA's mounting debts. Obama seems unable to make any serious inroads into the deficit.

Eyes are now turning to the next Presidential election. Donald Trump is a possible runner. And the fact that the US government is spending four dollars for every three will surely be lost beneath the usual electoral razzmatazz.

The dollar is coming under pressure. Theproperty market is dead in the water. Who would invest in America right now? Well actually, maybe I would...

If only UK property was this cheap

Down at Myrtle Beach last week I spent some time nosing around a condominium overlooking the sea. With its own health spa and swimming pool, a good location and a sleek appearance it was all very tasteful.

The show apartment was 1300 square feet. Two large bedrooms and bathrooms, and the sort of generous cupboard space that UK builders always seem to think we can live without. There was a little balcony, and of course a nice fitted kitchen complete with giant American style fridge.

150,000,' said the sales agent, ......dollars.'

Three years ago, these apartments were selling for over 400,000 dollars. If it were anywhere in the UK, it would cost twice as much at least.

In recent editions of Penny Sleuth I have been explaining why I would not touch UK property investment. How the economic predicament of this country dictates that land values and houses prices must come down.

But this place is very different. These properties are now selling way below their building costs.

And I have to admit that the rental yields look very enticing. This particular flat would yield an annual rental from holiday lets of about 30,000 dollars. That is a 20% yield on cost.

Even allowing for some agent hype, this is the sort of yield that gives the owner the luxury of a handsome income while he waits for capital values to recover.

It just goes to show how delusional we are about property prices in this country. Can anyone point me in the direction of that kind of value in the UK? I'd be delighted to see it. Hell, I might even buy in.

Unfortunately, I sincerely doubt it exists. The trip to Myrtle Beach has only made me more certain:UK property has a long way to fall before I get interested. It seems that when it comes to excess, we British can put the Americans to shame.

This article was first published in Tom Bulford's twice-weekly small-cap investment email The Penny Sleuth.

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Tom worked as a fund manager in the City of London and in Hong Kong for over 20 years. As a director with Schroder Investment Management International he was responsible for £2 billion of foreign clients' money, and launched what became Argentina's largest mutual fund. Now working from his home in Oxfordshire, Tom Bulford helps private investors with his premium tipping newsletter, Red Hot Biotech Alert.